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The Canadian Mortgage Machine Fires Up Again, As Debt Levels Resume Growth

Canadian mortgage numbers are back to growth, after taking a very brief vacation. Bank of Canada (BoC) numbers show outstanding household credit continued to rise in February. The trend was driven by an increase in mortgage balances. The increase comes after last month’s decline, which was the first monthly decline in over six years.

Household Credit Now Over $2.125 Trillion

Household credit, the total debt held by consumers, made a small gain. The balance rose to $2.125 trillion, a 0.05% increase compared to the month before. The balance has made a 5.51% increase over the past 12 months. Total household credit can be divided into 2 categories, mortgage and consumer debt. Let’s break them down.

Source: Bank of Canada. Better Dwelling.

Outstanding Mortgage Debt Is Now Over $1.523 Trillion

Mortgage debt is where household debt got its boost, as the numbers climbed. The total outstanding balance of mortgage debt reached $1.523 trillion, a 0.08% increase from the month before. The 12 month gain is now 5.53%, just a touch over last month. The increase means people are accumulating debt, faster than they are paying it off.

Source: Bank of Canada. Better Dwelling.

The rate of growth is currently consistent with the trend. The 5.55% annual rate of growth, is only -0.18% under the median for the past 5 years. The minor uptick on the annual rate, does put an end to the 9 consecutive months of tapering growth. Now, one month doesn’t make a trend, but it is worth noting.

Source: Bank of Canada. Better Dwelling.

Consumer Debt Is Now Over $601 Billion

Consumer debt, which is what you use when you buy a car or finance a toaster, is also growing. Although it did decline on a monthly basis. The balance of outstanding consumer credit stood at $601 billion, a 0.01% decline compared January. This brings the 12 month total increase to 5.42%. Yes, it’s growing at a similar rate as mortgage debt.

Source: Bank of Canada. Better Dwelling.

Consumer debt declining is either good or bad, depending on your perspective. If you’re one of those three letter international organizations warning about Canadian debt levels, it’s encouraging to see a second monthly decline. If you’re a politician that’s been padding Gross Domestic Product numbers using debt fueled growth, this is definitely bad news. Shifting debt driven household consumption to income based, would be nothing short of a miracle. That said, there’s a positive and a negative in these numbers, depending on what you’re looking for.

Source: Bank of Canada. Better Dwelling.

Just like last month’s decline didn’t make a trend, this month’s reversal of mortgage debt doesn’t make a trend either. After decades of positive credit growth, it’s only natural that the market would take a break. Watching how this trend evolves however, is going to be important to those that depend on credit flows.

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52 Comments

Eat it bears! Without a crash, there’s no reason to believe people will stop taking out mortgages. We’ll need to see a spike in unemployment before anything like that occurs. Unlikely considering the government has been so optimistic about our outlook.

Recessions are always a surprise, and never anticipated by the government. Think of the Government of Canada as investor relations. It’s their job to make everything seem nice and stable, in order to preserve a reputation for international investors and customers, er, I mean immigrants.

Lol…exactly. Until people are ‘in the streets looting’ most governments act like business as usual for fear of ending the gravy train of foreign capital investment and in the case of Canada a consistent flow of immigrants. Also take note of the distractions in our media. We seem to care more about a dead russian in the UK and gun rights in the US than our own domestic problems. When we start to focus on our issues the important ones are overshadowed by fluff;The less-incompetent Ford brother, Lil JT making a fool of himself or the NDP leaders crazy-extremist views which are all news in their own right but I would probably put them above dog sweaters but well below a potential national crisis which will stall our economy for 12-24 months potentially…just sayin’. Tick tock.

I am waiting anxiously, I thought I over payed 11 years ago (lol), been waiting to buy a little investment property ever since and finally I am beginning to see a little light lets hope it gets brighter.

Optimistic? Only if you consider a policy of near zero interest rates to be a policy of optimism. Which of course it isn’t, it’s regulatory desperation. Just imagine the real estate market when we hit the next inevitable cyclical downturn, with prices at double sustainability , rising inflation and interest rates, calamitous debt levels, and a local economy underpinned by the asset bubble. As has been astutely observed previously in this thread …”tick tock”.

Happy to report at the same time, huge numbers of Mcmansions which were put on the market over the last few weeks are already being taken off due to no – lower than expected offers. This is the $1.2 – $3 million segment in York Region. And there are TONS of em expected to come on stream/market over the next 3-6 months….LOL

Dont believe me? ask your agent to pull listings from the last 3 months, then ask to see those which have been terminated =) your poorer than you think…….

Also you should note that this is the reason I expect March numbers to be even higher than February, which has always been historically higher than January as noted in the article. Not to mention the pre-approvals for non-B20 mortgages are running out last month and this month, and so until those are flushed out of the system it’s really meaningless.

Ha Ha! I’d actually been wondering that myself, Blue. Where will the characters of the BD underbelly be come fall? Me thinks it won’t be anywhere near this comments section, except maybe to relay the news from CREA that it’s only “a minor pullback”. Tick tock indeed.

Having waited for a correction for the last 5-6 years which never happened and consequently having missed out on tons of money either in BC or Ontario as I had the means to invest and now also waiting to see what the impact of the new mortgage rules will be I started to have a feeling the market will just flaten out for a few years and after that maybe start growing again at slow pace at first. Yes I’m one of those who missed out big time on the last 5 years run up in prices in BC and Ontario.

Why not regret not buying Bitcoin 5 years ago? That would have been an even more lucrative play, even after the recent 60% correction. You stayed clear of the madness. That behavioural trait will serve you more often than not. It’s just in this crazy upside down world of escalating debt and zero-cost borrowing that the reckless and the leveraged are being rewarded. That will change. And you’ll be better for having not participated.

Even some of those who bought five years ago will be in trouble. Take a look at how many people have been refinancing their homes (i.e. adding more debt at renewal time) just to sustain their lifestyle. They don’t call it “borrowing” of course. They call it “unlocking some equity” or some other euphemism that makes it sound like they’re spending their actual wealth instead of spending borrowed money. The bank still expects to get paid back.

Think about your prediction for a moment and answer a couple of questions. Who is driving house prices up? 1) Debt level increases 2) Local Speculators 3) Foreign investors

Bot US and Canada central banks are increasing interest rates (+1.75% scheduled until 2020) which will make almost impossible to raise debt levels even further because banks just wont give you more money (actually they will give you even less) So it’s only speculators and investors remaining. If you prediction is correct and prices will flatten for a couple of years that means both investors and speculators won’t get any return on their investments during that period. Imagine that you are one of them, will you keep investment which brings you 0% profit? Especially for a couple of years.

So even if the prices will flatten, we should expect credit to shrink and investors/speculators to start looking for more attractive options since they only care about returns which makes this scenario unsustainable with significant downward pressure on prices.

Therefore I don’t buy those “soft landing” or “price flattening” scenarios. There are only two ways for Toronto/Vancouver housing markets – either UP or DOWN.

Hello to our resident groundhog…spring seems to be coming early so kudos! You know are completely full of shit, The fact that you note ‘missed out on tons of money’ is subversive; this isn’t an investment blog, no one here is high fiving about getting out before a potential downturn and swapping short-plays to further fuck over Canada. Remember how you stumbled in here with some retarded investment newswire article that you couldn’t even post a link to claiming we are in the rebound? I know you’re a medium sized rodent but you should have a decent memory (helps with forging for nuts…)…I won’t forget Willy. I will find you. I am the elephant liam neeson biaatttch!

Honestly I’m shocked by your comment and apparently you misunderstand my posts. If you don’t understand something you can ask for clarification and I will be more than happy to provide it. I sometimes misunderstand parts of what people try to say and there’s no harm in asking them what they mean..

Anyways I’ll clarify so you can get a better understanding of what I try to post because I love this site as it happens to provide information and analysis that more often than not coincide with what I think actually.

But before I clarify what I mean I would like to thank the posters who reply by trying to explain what they think and I truly appreciate them.

now I’ll explain what I mean and you will be surprised to find out we share many of the same feelings on the market:

First of all I never ever before considered houses as an investment like stocks or to be seen as a speculative investment, on the contrary I see them as a place to live in and because I didn’t buy a house 5 or more years ago as I thought we were in a bubble and that it was not a good time to buy so I find myself facing very high prices today as the prices kept going up regardless of the reasons and consequently if I buy today I will be losing money by overpaying for something that is way overpriced and that’s why I said I missed out on tons of money I mean if I bought a house to live in say 5 years ago I could have saved the money that I would have to lose otherwise if I bought today so I definitely was not intending to speculate and I know speculating is gambling and it could ruin lives but long term investment like everybody else does is not bad and that was my goal.

Now regarding the newswire article, I never claimed we’re in a rebound. What I said is according to the article some experts think the market will rebound. So this was not my own opinion and honestly I mentioned the article because I am doing extensive research now to better understand the market so I don’t buy in a declining market, lose money and regret it after but at the same time I don’t want to lose money on a house I want to live in like I did before if the market didn’t correct as expected by some. So the thing is I was trying to see what people on here think because I’m pretty sure many of them knows the market better than I do and there’s no harm in asking their opinion.

Now why I think the market could just flatten out is because the new mortgage rules were introduced to stop the bubble that could have burst really bad if left like the one that burst in 1989 in Toronto. And also last year they introduced the fair housing plan that at least slowed the bubble according to the stats of sales and prices. So I thought maybe those measures would stop the bubble from bursting and they might lead to a flat market for a while instead but of course I’m no expert and I could be wrong and there might be a correction down the road and guess what if the correction happens I will be happier than you because at the end of the day who would want to buy an overpriced home even if the goal is just to live in?

I hope it’s clear now what I mean and I would like to thank whoever replied constructively to any of my concerns.

Willy you would have made a ton more money over those years in any speculative investment… be it bitcoin (2500%), marijuana stocks (3000%), tech stock basket from 2008 (1700%), S&P500 index fund (430%). Real estate has always been the worst performing asset class, and even with this massive bubble and run up it still hasn’t performed nearly as well as any actual investment.

These are the December purchases with a 60-90 day close. This makes perfect sense. The drama will start next month as the B-20 kicks in. In 3-4 more months when the pre-approvals end you will a significant drop. P.S. Toronto sales for March down -41% from last year. 6,950 compared to 12,077(2017.) 10, 326 (2016).

The media said the buyers would come back in the fall 2017 X The media said the buyers would come back in the spring 2018 X The media will say the buyers will be back in fall 2018 X 3 strikes before capitulation!

Why is there an assumption that people will settle for lower mortgages with big banks subject to B-20 if they can instead go to alternative lenders who often offer the same, if not better, interest rates and do not have to apply a stress test? Just curious.

For the following reasons: 1) Alternative lenders don’t have unlimited piles of cash. They also have shareholders/owners and regulators to satisfy, just like the big banks. They can’t possibly absorb all the big banks’ rejects. 2) Some provinces are considering B-20-like rule changes. Strong expansion of alt-lenders’ loan books will force more provinces to act on this. 3) Some provincial institutions (Caisse Populiares in Quebec) have indicated they will voluntarily adopt B-20 standards. 4) Higher loan demand from alt-lenders will push up interest rates in that segment. They don’t operate in a vacuum.

It should also be noted that alt lending is just an extension of the banking system. Person A with good credit borrows at 3% and lends at 9-14%. Some community based alternative lending is more of a community bank but they still charge moreIf you can find alt lending below 7% you are lucky. Well not lucky…

1. Alternative lenders such as Home Capital do are subject to the stress test. 2. Most Ontario Credit Unions adopted the stress test so they can sell their mortgages if need be to other financial institutions. 3. Private mortgages offer rates from 8-12%

Yes they have because they need the flexibility to sell their mortgages to other financial institutions for liquidity. If the mortgages is not B-20 compliant its like having a car without a valid e-test. It has value in Africa but not in Ontario.

Beyond that, we are a capitalis not socialist society. If a lender’s competition can’t lend to you, why would they undersell their product. They know you have no other option so they can boost their rates a couple points.

It’s like any investment. If you don’t have money and not willing to take risk why bother. At this current housing market only invest if you can afford to lose. You need put down almost 35 or 40 percent on investment property to make break even now a days. Cause rent don’t cover it anymore.

Lot of yappers here. talking big bear with all their analytics. people made a killing the last 10 years in Real Estate. It’s a cycle. The RE cycle is over for a few years. I guess you guys missed the boat and are waiting for the next one. tick tock? what the hell? you guys all screwed up and to make yourself feel better of missed investment you can’t wait for the bubble to pop? weird psychology going on with this site. Crash/recession just makes inequality worse.

Wrong site son. Go boast about your imaginary wealth somewhere else. Most of us know cash-flow negative properties don’t represent the road to riches. So this ain’t the place for pretenders to live out their landlording fantasies online. We exposed Professor of Real Estate for a fraud. He hasn’t been seen since. We’d rather not have to do the same to you.

No idea what you are talking about. some people made a fortune in RE – do you disagree? cash flow negative is bad now but turned out real well for investors who bought and sold over the last 10 years. some people made money – you didn’t. why are you so upset?

It’s not fair to say ppl who comment here are losers. I had that idea when I first came here few months ago but I was wrong. I think there are lot of smart people here who already make good money in real estate and have solid understanding what is going on.

Looks like we struck a nerve! ” cash flow negative is bad now” sorry to hear that landlord Yyz , hopefully you can get out. Hopefully you also bought ten years ago as well. You’ve only made profit once the sale is completed and the money is safely deposited in your bank account. You Winner!

God I hate the “I’m ballin’ because of real estate” diatribe, especially when dismissing hard data. In the months that I’ve been a reader I’ve gathered that most regulars here are quite knowledgeable and most seem to be owners. The big difference is that most of us want a return to normalcy, not as some sort of perverse reckoning, but because real estate is not Bitcoin… It’s not the S&P or gold bullion, it’s a place that people build their lives, have families and cultivate a sense of place and security within the communities that they live. And yet we have completely screwed a generation of that privilege… and it is a privilege, but one that I like to think should be achievable for the average Canadian citizen.

I myself am an owner, without a mortgage, with a household income that’s triple the average in Toronto. And yet, by all logical calculations I can’t REALLY afford a house without completely screwing my finances for a lifetime. How does that work? How does that make a “world class city”? But even still it always comes back to the same BS arguments coming from some sort of real estate investment genius, living the high life while the rest of the “losers” who missed out just watch in envy. This is not the ideals that this country was built on and I really hate that we’ve been pushed here.

What make you think that none of us a fortune in Real Estate? We are now tracking the crash until the next entry point. Rinse and repeat. I am now counting my winnings as the market corrects. YOU ONLY WIN when the others lose. Try and exit this market now, I dare you!

I find anyone timing the market whether bull or bear get burned more often than not as seen by those predicting a crash in the past decade and those buying out of fomo or to flip last year. Also the taxes and fees for selling and buying in Canada you need a huge drop in prices to make a significant gain o the re- entry. Just like if you buy to reno and flip it’s a huge risk if you can’t sell to cover the taxes, fees, and commissions.